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The significance of the task force for local currency transactions
LCT will reduce dependence on certain currencies, reinforce the stability of the rupiah and partner country currencies, strengthen the resilience of the local money market and increase trade and investment with partner countries.
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Digital transaction: Bank Indonesia employees explain the Quick Code Response Indonesian Standard (QRIS) digital payment system on Aug. 20, 2023, to a small and medium entrepreneur during the National QRIS Week in Tegal, Central Java. (Antara/Oky Lukmansyah)
T
he leaders of 10 ministries and institutions on Aug. 5 signed a memorandum of understanding (MoU), witnessed by President Joko “Jokowi” Widodo, to create a national task force to further accelerate the implementation of the agenda of Local Currency Transaction (LCT). The establishment of the task force strengthens collaboration, increases the role of authority and reflects a national commitment to encouraging the use of local currency in cross-border transactions in order to reduce vulnerability to exchange rate volatility.
The MoU involves financial regulators Bank Indonesia, the Financial Services Authority, the Deposit Insurance Corporation, the Office of the Coordinating Economic Minister, the Office of the Coordinating Maritime and Investment Affairs Minister, the Finance Ministry, the Foreign Ministry, the Industry Ministry, the Trade Ministry and the State-Owned Enterprises (SOEs) Ministry.
Although the national task force was not established until Aug. 5, Indonesia has shared a local currency framework with Malaysia and Thailand since 2018 as well as with Japan and China. LCT means that bilateral transactions between two countries are settled in the currency of each of the countries involved.
The enactment of an LCT framework would reduce dependence on certain currencies, reinforce the stability of the Indonesian rupiah as well as the partner country’s currency, strengthen the resilience of the local money market and increase trade and investment with partner countries using the LCT framework. Increasing local currency use can also enhance macro-financial stability in the region by making economies less susceptible to global shocks that emanate from the rest of the world.
As part of a broader effort, ASEAN member states agreed in 2019 to strengthen bilateral cooperation among members by developing a Guideline on an ASEAN Local Currency Settlement (LCS) Cooperation Framework. It aims to promote the use of local currencies within the ASEAN region for cross-border trade, investment settlements and other cross-border activities such as deposits and transfers.
The guidelines have been implemented by some ASEAN members such as Indonesia, Malaysia, and Thailand. However, in practice, the ratio of LCT transactions to total trade remains limited, leaving a lot of untapped potential. Thus, an enhanced strategy to promote the use of local currency for transactions among ASEAN countries is imperative.
As one of the key priorities under Indonesia’s ASEAN chairmanship in 2023, ASEAN members finally agreed to establish an ASEAN Local Currency Transactions Task Force (LCT TF). Bank Indonesia volunteered to be a cochair alongside the Bank of Thailand (BOT) in leading the way for the ASEAN LCT Task Force to develop the LCT framework and promote the use of LCT by taking further steps to make local currency transactions more attractive, accessible and efficient. This effort further strengthens ASEAN's position as the epicentrum of global growth.
